November 24, 2017SEC TO ISSUE RULES GOVERNING CROWDFUNDINGThe Securities and Exchange Commission on November 21, 2017, authorized itsMarkets and Securities Regulation Department to disseminate for public commentthe proposed SEC Rules and Regulations Governing Crowdfunding.The is in response to recent financial innovation of raising funds for a venture ofprojects or start-ups performed through internet platforms.Crowdfunding generally refers to a method of fundraising whereby money is sourcedfrom a large number of individuals usually through an online platform. This methodallows investors to obtain access to investment opportunities and enables businessstart-ups and small and medium-sized enterprises (SMEs) to access a new source offunding for their investment and operations through the internet.Typically, the crowdfunding model involves three parties:1. The entrepreneur (or the project initiator): The individual who proposes the businessor the project;2.The supporters: Individuals or groups of individuals, who are willing to fund orsupport the idea or the project and;3.The platform (or a moderating organization): A virtual marketplace that brings theparties together for launching the project.Supporters of the idea or project make their contributions or donations via onlineplatforms. Thereafter, the platforms coordinate and administer the fundraisingactivities.Generally, there are four (4) identified forms of crowdfunding:a)Donation-based crowdfunding: individuals pool their resources to support acharitable cause;

Office of the Commission SecretaryS-309, 3F PICC Secretariat BuildingPhilippine International Convention Center (PICC) ComplexPasay City 888-8141 ; 818-5478b)Reward-based crowdfunding: individuals give money to a company in return for a“reward”, usually a product produced by the company;c)Lending-based crowdfunding: individuals lend money to a company and receive thecompany’s legally-binding commitment to repay the loan at pre-determined timeintervals and interest rate; andd)Equity-based crowdfunding: individuals invest in shares sold by a company andreceive a share of the profits in the form of a dividend or profit distribution, subject tothe company’s discretion.The SEC proposed rules will govern lending-based and equity-based(securities-based) crowdfunding.Features of the draft SEC Crowdfunding RulesThe Rules Governing Crowdfunding (CF) Market will:Require registration and full disclosure of the issuer, intermediary (e.g. registeredpersons, funding portal), and platform: Disclosure Requirements for Issuers; GeneralRequirements for Intermediaries; Registration of Funding PortalsProvide threshold as to the amount of funding to be raised thru crowdfunding: Total ofPhP 10 million within a 12-month period.Provide prohibitions on advertising terms of offering: Prohibition on Advertising Termsof Offering.Provide measures to reduce risk of fraud and manipulation: Measures to Reduce Riskof Fraud; Requirements with Respect to Transactions; Conditional Safe Harbor.Restrict access to qualified investors: Investor Qualification.Provide instructions on the provision and educational materials to investors:Educational Materials.